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ACC 703 Lecture Notes - Revenue Recognition, Office Supplies, Financial Statement

104 views2 pages
coffeefox144
20 Apr 2013
School
Ryerson University
Department
Accounting
Course
ACC 703
Professor
Deidre Taylor

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Document Summary

Blue the professor"s elaboration on the answer. Issues with current assets way too high, trying to maximize the income. Big at risk issue problem with giving current assets as a lump sum. Used the money and have no cash to pay. If you have the cash you didn"t pay the liabilities, if you don"t have the cash, you haven"t paid the liabilities. Net the grant against the asset that the grant was received for. Set up a deferred credit in the long term liability. Ppe net of amortization too high, should have been net of grant if you decided to use. Incorporation costs they are not asset, expensed. Travel in search of land expense if tax minimization is the objective, in this case capitalize in the cost of the land. Cost of calls capitalize in the cost of the land. Product development cost we have the resources, and intend to sell capitalized because the product development criteria is met.

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Related Questions

The Wong family incorporated Alberta Wholesale Limited (AWL) on January 1, 20X1 when the company issued common shares to several family members for cash. After obtaining mortgage financing, the company constructed a warehouse and began a food wholesale business.
The company has a small accounting staff that recorded transactions throughout the year. The company’s CEO knows that cash is correct because she has reviewed the bank reconciliation. However, she was unable to hire a professionally trained CFO and is concerned that the draft financial statements prepared by her staff (Exhibit I), which are prepared using IFRS, may have errors including the final calculation of income tax expense based on a 30% income tax rate.
The CEO has hired you to correct any accounting errors made by her staff by:
1. Providing a memo listing any adjusting entries that the company needs to make along with comments explaining why the company recorded items incorrectly and how and why the company should have recorded the transaction along with supporting calculations relating to adjustments. You should have at least one adjusting journal entry (you may need several entries for some issues) for each of the following issues. If an issue deals with more than one transaction, try to have an adjusting entry for each transaction within the issue.

Issue 1
On January 1, 20X1, the company received an operating line of credit from the bank for $6,000,000. The interest rate on this line was at 5% throughout 20X1. On that same day, AWL bought land costing $2,000,000 and on that day, construction on a warehouse commenced. The company paid the building contractor $4,000,000 on each of the following three dates for a total amount spent of $12,000,000: February 1, March 1 and April 1, 20X1. The contractor completed construction of the building by April 30, 20X1. AWL also received a $10,000,000 mortgage at 4% was received from the bank on February 28, 20X1 to pay for the warehouse. The mortgage required monthly payments of $101,246 on the last day of each month commencing March 31, 20X1. Interest on the line of credit is due on the first day of each month commencing February 1, 20X1. AWL paid no portion of the principal of the line of credit during 20X1 and there are no fixed terms of repayment on the line of credit although the bank can demand repayment at any time by giving 90 days notice and requires the company to maintain a current ratio greater than 3:1. Furthermore, the debt to equity ratio cannot exceed 1.5 so the company does not want to record any more liabilities if possible.

Issue 2
The company received a government grant of $1,000,000 cash on April 30 to make the warehouse more energy efficient. When received, we recorded it in grant revenue.

American Meter Company closes its books and prepares financial statements at the end of each month. American uses the perpetual inventory system. The company completed the following transactions during August, 2017:

Aug 1 Issued check no. 682 for August rent of $1,000

2. Issued check no. 683 to pay salaries of $1,240, which includes salary payable of $930 from July 31 (ignore payroll deductions).

2. Issued invoice no. 503 for sale on account to R. T. Loeb, $600. American’s cost of this merchandise was $190.

3. Purchased inventory on credit terms of 1/15, n/60 from Grant, Inc., $1,400

4. Received net amount of cash on account from Fullam Company, $2,156, within the discount period. The invoice, dated July 26 with terms of 2/10, net 30, was in the amount of $2,200.

4. Sold inventory for cash, $330 (cost, $104)

5. Received from Park-Hee, Inc. merchandise that had been sold earlier for $550 (cost, $174)

5. Issued check no. 684 to purchase supplies for cash, $780

6. Collected interest revenue of $1,100

7. Issued invoice no. 504 for sale on account to K. D. Skipper, $2,400 (cost, $759)

8. Issued check no. 685 to pay Federal Company $2,600 of the amount owed at July 31. This payment occurred after the discount period.

11. Issued check no. 686 to pay Grant, Inc. the net amount owed from August 3

12. Received cash from R. T. Loeb in full settlement of her account receivable from August 2

16. Issued check no. 687 to pay salary expense of $1,240

19. Received half the July 31 amount receivable from K. D. Skipper—after the end of the discount period

19. Purchased inventory for cash $850, issuing check no. 688

22. Purchased furniture on credit terms of 3/15, n/60 from Beaver Corporation, $510

23. Sold inventory on account to Fullam Company, issuing invoice no. 505 for $9,966 (cost, $3,152)

25. Issued check no. 689 to pay utilities, $432

26. Purchased supplies on credit terms 2/10, n/30 from Federal Company, $180

30. Returned damaged inventory to company from whom American made the cash purchase on August 19, receiving cash of $850

30. Granted a sales allowance of $175 to K. D. Skipper

31. Purchased inventory on credit terms 1/10, n/30 from Suncrest Supply, $8,330

31. Issued check no. 690 to Lester Mednick, owner of the business, for personal withdrawal, $1,700

The chart of accounts with account balances as of July 31, 2017 are as follows:

General Ledger

101 Cash $ 8,650 401 Sales Revenue

102 Accounts Receivable 19,560 402 Sales Discounts

104 Interest Receivable 403 Sales Returns & Allowances

105 Merchandise Inventory 41,800 410 Interest Revenue

109 Supplies 2,150 501 Cost of Goods Sold

117 Prepaid Insurance 2,200 510 Salary Expense

140 Note Receivable, Long-Term 11,000 513 Rent Expense

160 Furniture 37,270 514 Depreciation Expense

161 Accumulated Depreciation 10,550 516 Insurance Expense

201 Accounts Payable 13,410 517 Utilities Expense

204 Salary Payable 930 519 Supplies Expense

207 Interest Payable 320 523 Interest Expense

220 Note Payable, Long-Term 42,000

301 Lester Mednick, Capital 55,420

302 Lester Mednick, Withdrawals

400 Income Summary

Accounts Receivable Subsidiary Ledger:

Fullam Company, $3,200

R T. Loeb, 0

Park-Hee Inc., 7,590

K.D. Skipper, 8,770

Accounts Payable Subsidiary Ledger:

Beaver Corporation $ 0

Federal Company 13,410

Grant, Inc, 0

Suncrest Supply 0

Prepare a Trial Balance in the Trial Balance Columns of a Worksheet (Trial Balance, Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet headings).

Check figure: Trial Balance before any adjusting entries should total $142,516

The 2 questions before this was the following.

Journalize the August transactions in the general journal (page 9). Do not include the explanations. American makes all credit sales on terms of 2/10, n/30 unless otherwise indicated. I have posted the beginning balances to the general ledgers and subsidiary ledgers for you.

Post daily to the general ledger. Also post to the accounts receivable subsidiary ledger and the accounts payable subsidiary ledger when appropriate. On August 31 post to the general ledger.

I'm unsure if what I get form the previous answers will also help do this quesiton.

Case 10-1

Swisscom AG, the principal provider of telecommunications inSwitzerland, prepares consolidated financial statements inaccordance with IFRS. Until 2007, Swisscom also reconciled its netincome and stockholders’ equity to US GAAP. Swisscom consolidatedfinancial statements from a recent annual report are presented intheir original format in Column 1 of the following worksheet. Note27, Differences between IFRS and GAAP, which includes Swisscom’s USGAAP reconciliation, also is provided.

Required

Use the information in Note 27 to restate Swisscom’sconsolidated financial statements in accordance with US GAAP. Beginby constructing debit/credit entries for each reconciliation item,and then post these entries to columns 2 and 3 in the worksheetsprovided.

Calculate each of the following ratios under both IFRS and GAAPand determine the percentage differences between them, using IFRSratios as the base:

Net income/net revenue

Operating income/net revenues

Operating income/total assets

Net income/shareholders’ equity

Operating income/total shareholders’ equity

Current assets/current liabilities

Total liabilities/total shareholders’ equity

Which of these ratios is most (least) affected by the accountingstandards used?

Worksheet for theRestatement of Swisscom's Financial Statements from IFRS to USGAAP
Reconciling Adjustment
IFRS DR CR US GAAP
Consolidated Statement of Operations
Net revenue 9,842
Capitalized cost and changes ininventory 277
Total 10,119
Goods and services purchased 1,666
Personnel expenses 2,584
Other operating expenses 2,090
Depreciation and amortization 1,739
Restructuring charges 1,726
Total operating expenses 9,805
Operating income 314
Interest expense (428)
Financial income 25
Income(loss) before incometaxes and equity in net loss of affiliated companies (89)
Income tax expense 1
Income(loss) before equity innet loss of affiliated companies (90)
Equity in net loss of affiliatedcompanies (325)
Net income(loss) (415)
Consolidated Retained EarningsStatement
Retained earnings, 1/1 (151)
Net loss (415)
Profit distribution declared (1,282)
Conversion of loan payable to equity 3,200
Retained earnings, 12/31 1,352
Assets
Current assets
Cash and equivalents 256
Securities available for sale 51
Trade accounts receivable 2,052
Inventories 169
Other current assets 34
Total current assets 2,562
Noncurrent assets
Property, plant and equipment 11,453
Investments 1,238
Other noncurrent assets 220
Total noncurrent assets 12,911
Total assets 15,473
Current liabilities
Short-term debt 1,178
Trade accounts payable 889
Accrued pension cost 789
Other current liabilities 2,213
Total current liabilities 5,069
Long-term liabilities
Long-term debt 6,200
Finance lease obligation 439
Accrued pension cost 1,488
Accrued liabilities 709
Other long-term liabilities 338
Total long-term liabilities 9,174
Total liabilities 14,243
Shareholders' equity
Retained earnings 1,352
Unrealized market valueadjustment on securities available for sale 39
Cumulative translation adjustment (161)
Total shareholders' equity 1,230
Total liabilities and shareholders'equity 15,473

27. Differences between IFRS and GAAP

The consolidated financial statements of Swisscom have beenprepared in accordance with IFRS, which differ in certain respectsfrom GAAP in the US. Application of US GAAP would have affected thebalance sheet and net income (loss) to the extent described below.A description of the material differences between IFRS and GAAP asthey relate to Swisscom are discussed in further detail below.

Reconciliation of net income (loss) from IFRS toGAAP

The following schedule illustrates the significant adjustmentsto reconcile net income (loss) in accordance with US GAAP to theamounts determined under IFRS, for the current year ended December31.

(CHF in millions)
Net income (loss) according toIFRS (415)
US GAAP adjustments:
Capitalization of interest cost 8
Restructuring charges 205
Depreciation expense -5
Capitalization of software 182
Restructuring charges byaffiliates 50
Net income according to GAAP 25

Reconciliation of shareholders’ equity from IFRS toGAAP

The following is a reconciliation of the significant adjustmentsnecessary to reconcile shareholders’ equity in accordance with USGAAP to the amounts determined under IFRS as at December 31 of thecurrent year.

(CHF in millions)
Shareholders' equity accordingto IFRS 1230
US GAAP adjustments:
Capitalization of interest cost 54
Restructuring charges 205
Depreciation expense -5
Capitalization of software 475
Restructuring charges byaffiliates 50
Shareholders' equity accordingto GAAP 2009

Capitalization of interest cost

Swisscom expenses all interest costs as incurred. US GAAPrequires interest costs incurred during the construction ofproperty, plant and equipment to be capitalized. Under US GAAP,Swisscom would have capitalized CHF 13 million and amortized CHF 5million for the current year.

Restructuring charges

During the current year, Swisscom recognized under IFRSrestructuring charges totaling CHF 1726 million. The followingschedule illustrates adjustments necessary to reconcile thesecharges to amounts determined under US GAAP.

Restructuringcharges in accordance with IFRS
Personnel restructuringcharges 1326
Write-down of long-livedassets 316
Misc. restructuring charges 84
Total in accordance with IFRS 1726
Adjustments to restructuringcharges to accord with GAAP (205)
Restructuring charges inaccordance with GAAP 1521

Reconciliation of restructuring charges
Restructuring chargesaccording to US GAAP consist of the following:
Personnel restructuringcharges 1228
Write-down of long-livedassets 209
Misc. restructuring charges 84
Restructuring charges inaccordance with GAAP 1521

Depreciation expense

Due to the difference in carrying value of long-lived assetsafter write-downs describe in (b), there is a difference in theamount of depreciation expense taken under IFRS and GAAP. Anadjustment is made for the current year to record an additional CHF5 million of depreciation under US GAAP.

Capitalization of software

Swisscom has expensed software costs as incurred. For US GAAPpurposes, external consultant costs incurred I the development ofsoftware for internal use has been capitalized. These costs arebeing amortized over a 3 year period. The capitalization ofsoftware costs accords with common practice in the UStelecommunications industry.

Swisscom has capitalized, as disclosed in the reconciliation ofnet income (loss) and shareholders’ equity to US GAAP, CHF 220million and amortized CHF 37 million in the previous year andcapitalized CHF 370 million and amortized CHF 188 million in thecurrent year.

Restructuring charges of affiliates

During the current year, Swisscom’s share of personnel and otherrestructuring charges recorded by affiliates amounted to CHF 50million. These restructuring charges do not meet all therecognition criteria contained in EITF 94-3 and therefore cannot beexpensed in the current year, under US GAAP.